The “employee group” was the foundation upon which private health insurance began, as it was simpler to market and sell plans to an employer for a group, rather than servicing all the employees individually.  The employees of the company comprised an already defined group on which to determine risk.  Companies often provided a large enough pool of consumers through which to spread risk, reducing costs by allowing for cost shifting from the sick to the healthy. The very nature of insuring actively employed individuals, the employee group tended to avoid higher risk people.[1]

In 1943, the War Labor Board allowed contributions to insurance or pension funds to be free from wartime wage controls, thereby enhancing employer incentives to provide health benefits.  Employment-based health care benefits became a means by which employers could compete for the shortage-laden workforce.  Another financial incentive was given to employers when the IRS declared employer contributions to health insurance premiums as exempt from the income tax.[2]  By the end of the war, those enrolled in employer-based health plans tripled.[3]

In 1948, Blue Cross participated in the campaign against Truman’s national health plan, defending the voluntary system as the answer to the needs of all Americans.  Blue Cross was really only interested in employed, middle-class Americans, and limited their marketing and enrollment to that demographic.  Even so, Blue Cross supported the idea of government subsidies for the indigent, so that in the event of non-payment the costs of their medical expenses would not be shifted onto paying Blue Cross customers.  However, the company could not fight strongly for these subsidies in order to avoid drawing attention the obvious shortcomings of the voluntary system.[4]

In 1965, the government established Medicare and Medicaid, to provide coverage for the elderly, the disabled, and Welfare recipients.  Proponents of nationalized health saw Medicare and Medicaid as the first steps towards expanded coverage that would eventually lead to a national health plan.  However, Medicare gained its widespread support for government intervention on the behalf of the elderly, because they were the exception to the employer-based system: by providing for the elderly, Medicare would allow the voluntary tradition to continue.  Insurance companies were not seeking to enroll the populations that were primarily outside of the work force as customers anyway.[5]  Medicare was linked to Social Security as an earned right:  “individual citizens earn their right to a decent retirement by virtue of their contributions during their working years.”[6]

Organized Labor

The institution of employment-based health benefits gained an unlikely, if somewhat reluctant, ally in organized labor.  In 1947, over a veto by President Truman, Congress passed the Taft-Hartly Act, officially known as the Labor-Management Relations Act.  Designed to severely restrict the authority of labor unions (Truman called it a slave-labor bill), an unintended consequence of the act resulted from an ambiguity relating to collective bargaining requirements.  The act did not ban the right of unions to use collective bargaining as a means of fighting for welfare and pension benefits, and so they did.  These fringe benefits grew in popularity during this period and they became known as Taft-Hartley Funds.  Fights for health and welfare benefits were the cause of more than half of the labor strikes in 1949 and early 1950.[7]

Many union leaders, like Walter Reuther of the United Auto Workers union (UAW), were advocates for a universal health care system funded by the federal government.  Union members were suspicious of voluntary solutions offered by employers out of fear that, in times of a sluggish economy, employers searching for savings would eliminate health and pension benefits.[8]  In practice, labor leaders found it more productive to concentrate their efforts on the union bargaining table, rather than on congressional lobbying.  Still, Reuther and others were convinced that as unions increasingly demanded health care benefits from their employers, employers would eventually join with labor and together fight for a federal plan.  In the meantime, collective bargaining became an essential mechanism by which labor leaders could build union loyalty.

In 1974, Congress passed the Employee Retirement Income Security Act, or ERISA, designed to help achieve uniformity in employee pension and welfare benefits plans by setting federal minimum standards, and preempting the states from regulating private-sector health plans.  While states maintained the right to regulate the insurance business, ERISA removed state jurisdiction over self-insured health plans—health benefit plans sponsored privately by individual firms, in which the firms assume the majority of the risk—or in union Taft-Hartley funds, because neither plan is technically run by an insurance company.[9]  For example, ERISA protects self-insured plans or Taft-Hartley funds from state-level taxation.  This pre-emption was very important to unions, not just for the tax savings, but also because it removed impediments to negotiating multi-state or national-level contracts. ERISA, therefore, succeeded in aligning the interests of organized labor with those of large employers in support of the voluntary employer-based system.[10]

Employer Mandates

In 1971, President Richard Nixon introduced his plan to secure health insurance on a national level, by eliminating the voluntary nature of the employer-based system and creating a mandate for employers to provide health benefits for their employees.  The President’s plan was a conservative counter measure to Senator Edward Kennedy’s Health Service Act of 1970, another attempt to legislate a national health plan funded through a payroll tax that would eliminate commercial insurers.  Nixon’s intention with the employer mandate was to reconcile the interests of the state, labor, and business by preserving the private insurance industry.  Nixon justified the mandate by comparing it to minimum wage requirements or occupational health and safety standards.[11]

Advocates of national health insurance, like Senator Kennedy, and many labor leaders opposed the plan when introduced in 1971.  They objected to its preservation of the private health insurance industry, which so many considered a large barrier to access.  They also saw an employer mandate as a regressive tax that would fuel job discrimination.  Perhaps most significantly, the employer mandate fell far short of universal coverage.[12]  As the debate continued, by the end of the decade organized labor felt a growing concern for the struggling economy and began to see an employer mandate as a means of incremental improvements towards the ultimate goal of universal coverage.  The political climate also shifted and political leaders, including then President Jimmy Carter and Senator Kennedy came to endorse the employer mandate.

When organized labor and democratic leaders first began to support the employer mandate, it was considered a radical shift in ideology; over the next 15 years, the degree of the shift was largely forgotten, and the employer mandate became viewed as more of a conservative position.[13]  The Carter administration saw prudence in an employer mandate since it sought to preserve the insurance industry and minimize the impact on the financially strapped federal government.  However, the administration diverged from labor because Carter insisted on requiring employee cost sharing, a stipulation that labor strongly opposed.[14]  The employer mandate never satisfied enough of the players to gain real momentum, and liberals and labor leaders remained frustrated by the deficiencies of the employer-based system.  The economy was suffering through the 1970s making any increase in government funding necessary to support the mandate difficult to envision; in the 1980s, the trend was for government to avoid any intervention on social issues.[15]

In 1993, President Clinton proposed universal health insurance using the employer mandate as the plan’s anchor.  Clinton was trying to expand coverage by building on the historically inherited mechanisms of the current system, believing that the employer mandate formula was not radical and would not have an adverse affect on employment.  However, those who stood to gain the most from the plan, the uninsured, were not organized and were very weak politically.  The multitude of other interest groups, all seeking to preserve different parts of the current system, created a deadlock of lack of consensus, and the Clinton plan ultimately died in Congress without ever coming to a vote.[16]  There have been no plans for major reforms since the failure of the Clinton plan.

[1] Gary Claxton, “How Private Insurance Works: A Primer,” Kaiser Family Foundation (April 2002), 6 and Institute of Medicine, 67.

[2] Jacob S. Hacker, The Divided Welfare State: The Battle over Public and Private Social Benefits in the United States (Cambridge: Cambridge University Press, 2002), 217.

[3] Bodenheimer et al., 7, Institute of Medicine, 70, and Marie Gottschalk, The Shadow Welfare State: Labor, Business, and the Politics of Health Care in the United States (Ithaca: Cornell University Press, 2000), 42.

[4] David J Rothman, Beginnings Count: The Technical Imperative in American Health Care (New York: Oxford University Press, 1997), 33-34.

[5] Institute of Medicine, 65, 189, and Rothman, 80.

[6] Rothman, 84.

[7] Institute of Medicine, 70-71.

[8] Gottschalk, 42-43.

[9] Institute of Medicine, 82, Gottschalk, 53-54, Polzer et al., Karl and Patricia A. Butler.  “Employee Health Plan Protections Under ERISA: How well are consumers protected under managed care and “self-insured” employer insurance plans?”  Health Affairs (September 1997-October 1997), and Robert W. Seifert and Nancy Turnbull, “An Advocate’s Guide to the Private Health Insurance Market,” The Access Project, (2001), 8.

[10] Gottschalk, 52.

[11] Gottschalk, 67-69.

[12] Bodenheimer et al., 161 and Gottschalk, 69, 73, 78.

[13] Gottschalk, 68, 75-76, 78, 116.

[14] Gottschalk, 79, 81.

[15] Institute of Medicine, 254.

[16] Bodenheimer et al., 161, Gottschalk, 115-116, Institute of Medicine, 264-265.